When Losing Customers Is Good for Your Business

When it comes to profitability, is it essential to endlessly analyze and understand your lost customers and devise a foolproof plan to win them back? If the question were posed two or three years ago, most marketing professionals would have answered unequivocally in the affirmative.

Today, I'm not so sure. Consider a recent Rockefeller Foundation study on lost customers, which found that nearly two-thirds decide "for no special reason" not to return to a business. If this is true, what kind of a targeted plan really could win them back into the fold?

These days, it is better to focus on retention plans that ensure your best customers remain happy and loyal, especially that high-value customer who, according to a 2000 Arthur Andersen retail study, is worth to your business over his lifetime the equivalent of 19.5 average-value customers.

The strategy to leave behind lost customers might sound scandalous to some business owners. But high-value customers provide the highest return on marketing dollars. They buy higher-margin merchandise again and again, they spend more than the occasional drop-in customer, and they tend to spread the word to friends. It makes sense to cater to this group and forget about winning back the strays.

The secret to retaining high-value customers, once identified, can be tracked through a specific set of touch points that occur in each phase of the customer life cycle, and how the customer perceives and responds to these touch points. The touch points should be analyzed from a customer's viewpoint (quality of shopping experience) and a company's view (transactional information). Combined, the resulting information helps a business develop a market plan for its highest-value customers as well as a plan to move less-valuable customers up the value chain.

1. Attract phase. How did you draw this customer into your business? In the retail department store arena, for example, high-value customers might be more attracted to a particular store by a charity event such as a fashion show or movie premiere than by advance-mail notice of a sale or newspaper coupons.

In insurance, high-value customers might become aware of and develop a preference for a particular company's policies due to a referral from their CPA or CFP.

2. Assist. As a rule, high-value customers are influenced by personalized, over-the-top service that indicates an intimate knowledge of their preferences and saves them time. Again, in retail, this might include a personal-shopper service such as that offered in Nordstrom.

High-value customers are less impressed with impersonal outreach attempts such as mass e-mails or even in-store kiosks. But they typically are responsive to other special offers such as premiums or discounts as long as the offers are communicated via personal communications as described above.

3. Purchase. Customized transaction services that let customers save time, such as frequent-shopper checkout lines in retail or special check-in lines at airports, are preferred by high-value customers across all industries.

The operational process should be designed to appeal to these customers, from the purchase itself to the receipt and even the invoicing. In telecom, for example, high-value wireless customers have been found to prefer having their phones personally delivered to them ready to use, with their favorite ring tone and frequently used numbers.

4. Service. It's a no-brainer that high-value customers expect individual attention from the companies and brands they support. Again, in retail, same-day alterations or the willingness of a sales associate to call around for a certain size are important. Liberal return policies and 24-hour service are not.

In insurance, low-value customers were found to demand personal, time-consuming assistance from agents while high-value ones wanted detailed information about policies and services. The solution? Direct the lowest-value customers to a dedicated interactive Web site and use the time saved by service reps to develop in-depth documents for high-value customers.

5. Retain. What is important to high-value customers? The answer sometimes is surprising. In retail we found valet parking is most popular among the lowest-value customers. In wireless, high-value customers are more interested in the latest, greatest phone technology than in earning points from a loyalty program. Here, customers readily switch to the competition to upgrade their phones at little or no cost to them. Retaining these customers means offering a special upgrade program on their phones every 18 to 24 months.

By focusing on retaining just 5 percent of high-value customers, statistics show, a business can boost profit 95 percent or more. And retaining five good customers costs the same as winning back one lost customer. So stop drumming up creative new ways to win back lost, often low-value, customers and focus on identifying and retaining those worth keeping.

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